The response of the Chinese central bank came promptly. Only one day after the release of the April inflation figures, China’s central bank announced today a further 50 basis point increase in the minimum reserve rate for commercial banks. This is the fifth increase already this year. From the middle of next week a reserve rate of 21% will apply for big banks. For the Chinese government the fight against inflation currently has top priority, not least for fear of possible social unrest. With a current annual rate of 5.3%, the increase in consumer prices is well above the government’s tolerance threshold of 4%. Despite the recent decline in oil prices we do not expect monthly inflation rates to fall back towards this threshold until some time in the course of the second half of the year. Monetary tightening therefore looks set to continue until the end of the year. Above all, the central bank is likely to raise its key interest rate further as well. At the end of the year we put this 50 basis points up on its current level, to stand at 6.81%. In the battle against inflation China is likely to stick to its policy of modest renminbi appreciation against the US dollar. Since the beginning of the year the Chinese currency has risen by 1.5% against the greenback. At the end of the year we see the exchange rate at 6.35 CNY/USD.